no need to leave your home to receive legal consultations and services - Call or click to learn more about phone and video conferencing with our attorneys

Family Limited Partnerships Explained

Article written by Attorney Kevin O'Flaherty
Updated on
October 28, 2019

In this article, we will explain family limited partnership and discuss the different assets that can be protected, the benefits of FLPs, and the differences between FLPs and Family LLCs. FLPs allow financially-savvy families and seasoned investors to combine their money and undertake projects that may or may not be possible for a single family member, due to lack of funds or business experience.  They also provide protection from creditors, estate planning benefits, and tax benefits.  

What is a family limited partnership (FLP) in Illinois?

If you are part of a family business, you may want to consider a family limited partnership (FLP). FLPs are valuable for a variety of reasons, including generation-to-generation estate plan security, protecting assets from potential creditors, and minimizing income, gift, and estate taxes.

A family limited partnership is a special form of limited partnership where family members serve as both general and limited partners. General partners run the business and hold the majority of liabilities, while limited partners don’t have a say in day-to-day operations and are not responsible for debt. In order to pass this partnership down to children and grandchildren, the senior family members would typically gift a portion or all of their limited partner interest.

FLPs can protect a significant portion of the following assets:

  • Cash
  • Stocks, bonds,
  • other investments
  • Vehicles
  • Real estate
  • Antiques, art pieces, and collectibles
  • LLC memberships
  • Copyrights, patents, and other intangible assets
  • Claims against others
  • Notes, mortgages, and other obligations
  • Beneficial interests in trusts

Family Limited Partnerships vs. Family LLCs

FLPs are often used for similar purposes as Family LLCs (FLLCs).  You should speak to your attorney and accountant to determine whether a FLP or an FLLC would be a better fit for your goals, or whether they should be used in combination.  However, FLLCs tend to provide greater liability protection while FLPs offer unique estate planning and tax benefits.  

For a more in-depth discussion of this topic, check out our article: What is the Difference Between a Family Limited Partnership and an LLC?

What are the benefits of forming an FLP in Illinois?

  • Protection from Creditors: Holding an asset in an FLP rather than in your individual name can protect it from creditors.  To learn more about this, check out our article: How to Protect Assets from Creditors.
  • Estate planning; many families use family limited partnerships to shift estate tax burdens from parents to children. When the interests are transferred to children, the parents escape inclusion in their estate when they die. Only the value of the taxable gifts at the time they were transferred to the FLP are included for purposes of estate taxes.  For more on this, check out our article: How to Avoid Estate Tax.
  • Transferring of ownership; FLPs allow business owners to set up family members as limited partners, where they can transfer partnership interests over time.
  • Income tax benefits; excluding the estate planning advantage, families can reduce their taxes by sharing partnership income.

Can a Family Limited Partnership own an LLC?

Yes. However, you generally shouldn’t use a limited partnership to operate a business, unless your general partners are LLCs or corporations, because the general partners would be liable for the partnership debts. Be sure to use a corporation or limited liability company to operate your business.

Additional Financial Considerations
from Financial Experts

From Financial Experts

For many years, financial institutions have been creating a disservice to clients and the industry as a whole for years.
View More Professional Considerations
Schedule a

Presented By O'Flaherty Law

Family Limited Partnerships Explained

Need Legal Help? 

Schedule a
contact us

9 am - 5 pm M - F
After 5 pm by Appointment
11 am - 3pm Sat by Appt
11 am - 2 pm Sun by Appt

What to Expect From a Consultation

The purpose of a free consultation is to determine whether our firm is a good fit for your legal needs. Although we often discuss expected results and costs, our attorneys do not give legal advice unless and until you choose to retain us. Although most consultations are complimentary, some may carry a charge depending on the type of matter and meeting location.
Schedule a
contact us

9 am - 5 pm M - F
After 5 pm by Appointment
11 am - 3pm Sat by Appt
11 am - 2 pm Sun by Appt

How many partners can a family limited partnership have in Illinois?
See if you qualify for a Tax Appeal
Illinois Franchise podcast

Business, Corporate & Contract Law

Disclaimer: Our articles and comment responses do not constitute legal advice and are not intended to create an attorney-client relationship.

Please contact us to schedule a consultation specific to your legal situation.

Contact us for a Free Consultation

Schedule a free consultation

O'Flaherty Law is happy to meet with you by phone or at our office locations in:

Who We Are
We are your community law firm. Our Iowa & Illinois Attorneys are committed to providing exceptional client service in a cost-effective manner in the areas of Family Law, Probate, Estate Planning, Civil Litigation, Guardianship, Criminal Defense, Corporate & Contract Law, Bankruptcy and Real Estate.

Some of Our Accomplishments

Naperville attorney
DuPage County Probate Attorney
Learn More About Our Firm

Subscribe to our mailing list

* indicates required